The Hague Trusts Convention Explained: What Recognition Does and Does Not Do

The Hague Trusts Convention is the international treaty that answers a deceptively simple question: when a trust created under one legal system turns up in a country that has no trust law of its own, will that country's courts accept that the trust exists? For a settlor weighing one seat against another, the answer shapes how much weight a Swiss bank, registry or judge will give to a trust deed written under foreign law. Switzerland, a civil-law country with no domestic trust statute, relies on this treaty for exactly that purpose.

This guide reads the Convention the way a practitioner does. It explains the text, separates what recognition gives you from what it leaves open, and follows a foreign trust step by step through the questions a Swiss court asks. It is general information, not advice: the outcome for a given trust depends on its governing law, the residence of the people involved, the nature of the assets and the canton concerned, and it calls for an individual analysis.

What the Hague Trusts Convention is

The full title is the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition. It was prepared under the auspices of the Hague Conference on Private International Law, the same body that produces treaties on matters such as child abduction and the service of documents abroad. Its purpose is narrow and practical. It does not create a trust law, it does not harmonise trust law, and it does not oblige any country to introduce trusts into its own legal system.

What it does is supply two sets of rules for states that apply it:

• Choice of law rules, which tell a court which legal system governs a trust when the question arises.
• Recognition rules, which require the court to treat a validly created trust as a trust, with a defined minimum of legal consequences.

The distinction matters because a trust is a creature of the common-law tradition, built on the split between legal title held by the trustee and beneficial interests held by others. A civil-law judge trained in a system where ownership is single and indivisible has no ready category for it. The Convention gives that judge a bridge: rather than force the trust into a local category, the judge applies a shared definition and a shared method.

Parties to the Convention include both common-law jurisdictions and several civil-law ones that chose to join in order to receive foreign trusts. For a map of where this applies, see where trusts are recognised and which states are parties.

The definition that opens the door: Article 2

Everything starts with the definition. Article 2 describes a trust as a legal relationship created, during a person's lifetime or on death, by which assets are placed under the control of a trustee for the benefit of a beneficiary or for a particular purpose. Three features follow from it:

• The assets form a separate fund and are not part of the trustee's own estate.
• Title to the trust assets stands in the name of the trustee, or of another person on the trustee's behalf.
• The trustee has the power and the duty to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties the law imposes, and must account for what has been done.

Two clarifications in the same article are often overlooked and matter a great deal in practice. The fact that the settlor keeps certain powers does not by itself mean the arrangement fails to be a trust. Nor does the fact that the trustee may also be a beneficiary. In other words, the Convention is tolerant of reserved powers, the kind that appear in many modern trust deeds, and of a trustee who has some personal interest in the trust.

This is why the label on the document is not decisive. A court applying the Convention looks at the substance: separation of assets, title in the trustee's name, a duty to manage and to account. An arrangement that lacks these features is not a trust for the purposes of the treaty, however it is described.

The actors in the definition

The Convention is deliberately silent on the protector and on many internal details. Those belong to the law that governs the trust, which is the subject of the next section.

Which law governs the trust: Articles 6 and 7

Before a court can recognise a trust, it must know which law decides whether the trust was validly created. The Convention answers this in two steps.

Step one: the settlor's choice. Under Article 6, a trust is governed by the law the settlor chose. The choice may be express, or it may be implied from the terms of the trust deed or the circumstances. A deed that states it is governed by the law of a given country is the usual and clearest route. The choice must, however, be of a law that actually knows the institution of the trust, or the category of trust concerned.

Step two: the closest connection. If the settlor chose nothing, or chose a law that does not know trusts, the choice has no effect and Article 7 applies. The court then looks for the law with which the trust is most closely connected. The Convention lists the factors to weigh:

• the place of administration of the trust designated by the settlor;
• the situation of the assets of the trust;
• the place of residence or business of the trustee;
• the objects of the trust and the places where they are to be fulfilled.

The practical lesson is that the governing law is a legal choice, while the place where the trust is administered is a factual reality. They can point in different directions, and a gap between them is a classic source of friction. The guide on governing law versus seat of administration takes that distinction further, and the glossary entry on the proper law of a trust gives the short definition.

What recognition means: Article 11

The heart of the Convention is Article 11. It says that a trust validly created under the applicable law must be recognised as a trust. The article then names the minimum consequences of that recognition:

• the assets of the trust are separate from the personal assets of the trustee;
• the trustee has the capacity to sue and be sued, and to appear or act as a trustee, in that capacity;
• the trustee can deal with the trust assets as a trustee, including before public officials and authorities.

In addition, to the extent that the law applicable to the trust requires or provides it, recognition means that personal creditors of the trustee have no recourse against the trust assets, that the assets do not form part of the trustee's estate on insolvency or bankruptcy, and that they do not form part of the matrimonial property of the trustee or the trustee's heirs.

Notice what the article does not say. It does not say that every effect the governing law attaches to the trust must be reproduced in the recognising state. It sets a floor, and the floor is essentially about separation of assets and standing in court. A trust that is recognised can therefore still meet local mandatory rules at the next stage, as the following section shows.

Why the floor is useful

For a civil-law country, the floor is enough to unlock ordinary life. A trustee can open a bank account in the trustee's capacity, be registered as the holder of assets, and be a party in litigation, while a creditor of the trustee personally cannot reach the trust fund. Without this, a Swiss bank or registry might treat the trustee as the plain owner of the assets, with all the consequences that would imply for the beneficiaries.

What recognition does not do: Articles 13 and 15

A fair reading of the Convention must give as much attention to its limits as to its promise. Several are built into the text itself.

Closely connected only to non-trust states: Article 13

Article 13 allows a state to decline to recognise a trust whose significant elements, apart from the choice of the governing law, the place of administration and the habitual residence of the trustee, are connected more closely with states that do not have the institution of the trust. The target is the trust set up to import trust effects into an environment where everything else about the arrangement belongs to a legal order that does not know trusts.

Not every state uses this room in the same way, and the article is an option, not an obligation. It is worth knowing about because it is the provision that a hostile counterparty may invoke when a structure looks artificial.

Mandatory rules of the forum: Article 15

Article 15 is the practical brake. The Convention does not prevent the application of the mandatory provisions of the law designated by the conflict rules of the forum, in particular in these areas:

• the protection of minors and persons lacking capacity;
• the personal and proprietary effects of marriage;
• succession rights, testate and intestate, notably the forced shares of close relatives;
• the transfer of title to property and security interests in property;
• the protection of creditors in matters of insolvency;
• the protection, in other ways, of third parties acting in good faith.

This list explains why a trust can be recognised and still be challenged. Recognition answers the question whether the trust exists. Article 15 leaves room for the question whether a particular transfer into the trust can stand against a spouse, a protected heir or a creditor. The interaction with reserved shares is the subject of the guide on forced heirship and trusts; in short, the treaty does not switch off the forum's succession rules.

A summary of the limits

The pattern is consistent. The Convention establishes that the trust is a trust. It does not decide who wins a dispute about the assets.

The recognition path before a Swiss court

Put together, the Convention's rules form a sequence of questions. The diagram traces the path a foreign trust follows when it is invoked before a Swiss court, whether by a trustee, a beneficiary, a creditor or a bank.

Two observations help in reading the chart. First, the order matters: a court does not examine the creditor or the heir until it has settled that a trust exists and which law governs it. Second, the later steps are where most real disputes are decided. Recognition is rarely contested in a well-documented, ordinary trust. The pressure usually arrives at the mandatory rules stage.

An example, presented purely as an illustration: a family established in Lausanne holds assets in a trust governed by the law of a common-law jurisdiction and administered abroad. A bank in Switzerland asks whether the trustee may open an account in that capacity. Under the Convention, and under the Swiss implementing rules, the answer starts from recognition: the trust is treated as a trust, the trustee acts as trustee, and the assets are kept apart from the trustee's own. The bank's remaining questions, such as the source of the assets and the identity of the people behind the structure, belong to its compliance duties and are unrelated to whether the trust exists.

How Switzerland ratified and applied the Convention

Switzerland signed the Convention on 3 April 2007 and ratified it on 26 April 2007. It entered into force for Switzerland on 1 July 2007. The Federal Office of Justice confirms that foreign trusts have been recognised in Switzerland since that date. In the federal compilation of laws, the Convention is classified as RS 0.221.371.

Because Switzerland has no domestic trust, the approval of the treaty came with accompanying legislation. The Federal Decree of 20 December 2006 approving and implementing the Convention added Chapter 9a, "Trusts", to the Federal Act on Private International Law (PILA, in French LDIP, in German IPRG), Articles 149a to 149e, and amended the Debt Enforcement and Bankruptcy Act. These provisions have applied since 1 July 2007.

The result is a Swiss framework with two layers: the treaty itself, and a short set of domestic rules that fill the gaps a Swiss court would otherwise face. The Swiss position on the wider question of how the country works as a seat, as opposed to a place of recognition, is covered in Switzerland as a trust seat.

Chapter 9a of the PILA, provision by provision

Three of these deserve a closer look.

Jurisdiction (Article 149b). A foreign settlor who writes a forum clause into the trust deed gets a clear answer on which court hears disputes, provided the clause is in writing or in a form that allows it to be proved by text. Without a clause, the Swiss courts at the defendant's domicile, at the seat of the trust or at the Swiss establishment concerned may hear the case.

Publicity (Article 149d). This is the rule that matters most for real estate and other registered assets. A trustee can be entered in the land register as owner, and the link to the trust can be noted. The noting is optional, but a link that is not noted cannot be relied upon against a third party acting in good faith. The question of assets and their location is discussed under situs of trust assets.

Foreign decisions (Article 149e). Judgments from the court validly designated in the trust, from the defendant's home state, from the seat of the trust or from the state whose law governs the trust can be recognised in Switzerland. The wider picture of courts and enforcement is set out in courts, enforcement and foreign judgments for trusts.

Debt enforcement and bankruptcy

The Debt Enforcement and Bankruptcy Act (LP, in German SchKG) received matching provisions, which turn the idea of a separate fund into procedure:

• Article 284a. When the assets of a trust answer for a debt, enforcement is directed against a trustee acting as representative of the trust, at the seat of the trust, and proceeds by bankruptcy limited to the trust assets.
• Article 284b. In the bankruptcy of a trustee, the trust assets are set aside from the bankruptcy estate, after deduction of the trustee's claims against those assets.

These two provisions give practical meaning to Article 11 of the Convention. A creditor of the trust cannot treat the trustee's private wealth as available, and a creditor of the trustee personally cannot treat the trust fund as part of the trustee's estate.

Common misunderstandings

Because the treaty is short and its vocabulary unfamiliar, several beliefs circulate that the text does not support.

"Recognition means the trust is protected." It means the trust exists as a trust and that a minimum of legal effects follow. Protection against heirs, spouses and creditors depends on the facts, on the governing law and on the mandatory rules of the forum. A protection that has limits is the accurate description. A fuller list is in myths about Swiss recognition of trusts.

"Switzerland now has trusts." Switzerland recognises foreign trusts. It has not introduced a domestic trust into its civil code. A Swiss resident can be a settlor or a beneficiary of a foreign-law trust, and a Swiss-based professional can act as trustee, but the governing law of the trust is a foreign one unless the structure is built differently.

"Any choice of law works." If the chosen law does not know the trust, the choice has no effect, and the closest-connection test takes over. A trust drafted under a law that has no trust concept is a drafting failure, not a clever solution.

"The treaty decides tax." It does not. The Convention is about law applicable and recognition. Tax treatment, reporting and information exchange follow separate rules and are outside this page.

Points to check before relying on recognition

Anyone who intends to rely on the Convention, whether as settlor, trustee or adviser, can use the following list as a starting point for a conversation with counsel.

• Confirm that the arrangement fits the Article 2 definition and does not merely carry the name of a trust.
• Check that the deed states its governing law, and that this law actually knows the type of trust used.
• Compare the stated law with the real place of administration and the trustee's residence, and note any gap.
• Ask whether the significant links of the structure all point to states that do not know trusts.
• Identify the mandatory rules of the countries concerned: succession, marital property, creditor protection.
• Check how registered assets, such as real estate, will be entered and whether the link to the trust will be noted.
• Decide whether the deed needs a forum clause and what form it should take.
• If an existing trust is moving, review the governing law and the administration before the move, as discussed in relocating an existing trust to Switzerland.

This list does not replace advice. Each item can hide a significant legal question, and the answers depend on the individual situation.